Brisco v. United States (In re Brisco)
| Decision Date | 28 January 2013 |
| Docket Number | No. 12 A 00462,No. 12 A 00463,No. 11 B 34774,11 B 34774,12 A 00462,12 A 00463 |
| Parties | In re: STEPHEN and ANGELA BRISCO, Debtors. STEPHEN and ANGELA BRISCO, Plaintiffs, v. UNITED STATES OF AMERICA, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Two adversary proceedings, Nos. 12 A 00462 and 12 A 00463 ("Brisco Proceedings"), are related to the Chapter 13 bankruptcy case filed by debtors-plaintiffs Stephen and Angela Brisco (the "Briscos"). The Briscos sued the Small Business Administration ("SBA") through the United States of America as defendant in two adversary proceedings seeking to classify the SBA's claim as unsecured pursuant to 11 U.S.C. § 506(a), to strip the SBA's lien from their primary residence and from a rental property pursuant to 11 U.S.C. § 506(d), and to modify the SBA's mortgage pursuant to 11 U.S.C. § 1322(b)(2).
The Briscos filed the present actions to void the liens of the SBA, the junior mortgagee, and classify its claims as unsecured claims under 11 U.S.C. § 506(a) and (d). They properly sued the United States as defendant though the Defendant is referred to below as the "SBA." In their bankruptcy schedules, they listed three secured creditors holding first, second, and third mortgages on their residence, as well as two secured creditors holding first and second mortgages on their rental property. Simultaneously with the filing of their petition, the Briscos filed their Chapter 13 plan, which was last modified on April 25, 2012, but is not yet confirmed. The deadline for filing of claims by governmental entities in this case was February 21, 2012. The SBA did not file a proof of claim regarding either the residence or the rental property, nor did the Briscos file proofs of claim on behalf of the United States as permitted by the Bankruptcy Code under 11 U.S.C. § 501(c). Under Fed. R. Bankr. P. 3002(c) a proof of claim of a governmental unit is timely filed if filed not later than 180 days after the date of the order for relief. Since the case was filed on August 25, 2011, the 180 day period has now expired.
JPMorgan Chase Bank, N.A. ("JPMorgan") holds a first mortgage lien on the residence and has a secured claim of $161,064.57 pursuant to its filed proof of claim. The United States holds a second mortgage lien on the residence with a secured claim of $25,800 pursuant to a recorded mortgage. An appraisal on the residence was conducted on June 20, 2011 and valued the residence at $135,000. The Briscos filed a separate adversary proceeding No. 11 A 02419 to determine the validity, extent, and priority of JPMorgan's lien on the residential property.
JPMorgan also holds a first mortgage lien on the rental property and has a secured claim of $213,829 pursuant to a filed proof of claim. The United States holds a second mortgage lien on the residence with a secured claim of $25,700 pursuant to a recorded mortgage. An appraisal on the rental property was conducted on June 13, 2011 and valued the rental property at $100,000. The Briscos filed a separate Adversary proceeding No. 11-02657 to determine the validity, priority and extent of JPMorgan's lien on the rental property. On February 10, 2012, a final consent judgment was entered against JPMorgan reducing the value of its secured claim from $213,829 to the valuation of thecollateral rental property, i.e., $100,000, and reclassifying the undersecured portion of the claim as general unsecured.
The secured claims of the first mortgagee are alleged to exceed the value of both the residence and the rental property, leaving no remaining value in the either property to secure the SBA's liens. Therefore, the Briscos request that the SBA's claims should be classified as unsecured and its liens should be voided and modified through confirmation of and effective upon successful completion of their Chapter 13 Plan.
There are no issues of fact in dispute, resolution of this matter depends on the interplay between several sections of the Bankruptcy Code and precedent construing those provisions. For reasons stated below, the SBA's Motions to Dismiss will be granted by separate orders in each proceeding.
District courts have exclusive jurisdiction over bankruptcy cases, pursuant to 28 U.S.C. § 1334(a), and they have concurrent jurisdiction over all civil proceedings "arising under" the Bankruptcy Code, pursuant to 28 U.S.C. § 1334(b). The determination of a creditor's secured status sought under § 506(a) "arises under" the Bankruptcy Code, and is within the District Court's jurisdiction. See Wood v. Wood (In re Wood), 825 F.2d 90, 96 (5th Cir. 1987) ().
Pursuant to 28 U.S.C. § 157(a) and its own Internal Operating Procedure 15(a), the District Court for the Northern District of Illinois has referred its bankruptcy cases to the bankruptcy court of this district. When presiding over a referred case, the bankruptcy court has authorization under 28 U.S.C. § 157(b)(1) to enter appropriate orders and judgments as to core issues within the case. Determination as to the dischargeability of particular debts and the determination of the validity, extent, or priority of liens are core proceedings under 28 U.S.C. § 157(b)(2)(I) and (K), respectively. Proceedings "arising under" the Bankruptcy Code are core proceedings. Id.
Venue in each adversary proceeding lies under 28 U.S.C. § 1409(a).
Standard Under Fed. R. Civ. P. 12(b)(6)
A motion to dismiss under Rule 12(b)(6) and Rule 12(c) accepts all well-pleaded allegations in the complaint as true and requires all reasonable inferences to be drawn in favor of the non-movant. Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir. 2010); Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759, 763 (7th Cir. 2010); Hayes v. City of Chicago, 670 F.3d 810, 813 (7th Cir. 2010), cert. denied, 133 S. Ct. 353 (2012).
To survive a motion to dismiss under Rule 12(b)(6): "a pleading must contain a 'short and plain statement of the claim showing that the pleader is entitled to relief.'" Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009) (quoting Fed. R. Civ. P. 8(a)(2)). Id., at 678 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 570 (2007)); accord Reger, 592 F.3d at 764. Under this standard, "a plaintiff must provide only enough detail to give the defendant fair notice of what the claim is and the grounds upon which it rests, and, through his allegations, show that it is plausible, rather than merely speculative, that he is entitled to relief." Id. (quoting Tamayo v. Blagojevich, 526 F.3d 1074, 1083 (7th Cir. 2008)).
The Briscos, through their Complaints, effectively seek to cancel the SBA's liens pursuant to § 506(a) and § 1322(b)(2) because the secured claim of JPMorgan exceeds the value of the subject properties, leaving nothing to which the SBA's liens can attach. The Complaints also request that the SBA's claims be valued under Fed. R. Bankr. P. 3012.
The SBA argues that the Briscos fail to state a claim under § 506 because Defendant is not the holder of an "allowed claim." As a result, it argues that its claim is not subject to classification under § 506(a) and avoidance under § 506(d).
At issue in this dispute is the following language from 11 U.S.C. § 506:
Subsection (a)(1) of the foregoing provision determines the extent to which an allowed claim is to be treated as a secured claim for Code purposes. The SBA argues that its claim is not subject to such determination here because it has not filed a proof of claim nor has one been filed on its behalf. Therefore, it argues, it cannot be a holder of an "allowed claim" under § 506(a)(1). If that is so, the SBA argues, then it is not possible through either proceeding to determine the secured status of its claim. If that cannot be determined, then its lien may not be cancelled and released through either proceeding as the Briscos seek.
A proof of claim timely filed is deemed allowed, unless a party in interest objects. 11 U.S.C. § 502(a). According to the SBA this means that the actual filing of a proof of claim (governed by 11 U.S.C. § 501(a)) is a condition precedent to allowance of a claim under § 502(a). If no proof of claim has been filed then there is no allowed claim subject to analysis and valuation under § 506(a).
The SBA has cited authority in support of its contention that filing a proof of claim is a prerequisite to judicial determination of secured status and valuation under § 506(a). Only bankruptcy court opinions have been cited to deal with this issue. In In re King, the bankruptcy judge vacated an order valuing a creditor's claim because the valuation occurred before a proof of claim was filed. 165 B.R. 296, 300 (Bankr. M.D. Fla. 1994...
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